The Dubai Financial Services Authority has opened its biggest review of DIFC fund rules in more than a decade, proposing changes that would make the regime more focused on the actual risks inside a fund.
Consultation Paper No. 173 proposes significant updates to the DFSA’s Collective Investment Fund framework. The regime was first established in 2006 and has not had a comprehensive review since 2010. The DFSA says the review is intended to align the framework more closely with international standards, improve clarity and reduce unnecessary regulatory burden while maintaining investor protection.
The consultation is open until 7 September 2026 and is aimed at fund managers, administrators, custody providers, asset managers, prospective applicants and professional advisers serving the funds industry.
A shift away from rigid fund labels
The most important proposal is the move away from fixed specialist classifications for private funds. Under the current framework, certain domestic funds can fall into specialist classes with specific requirements. The DFSA says market feedback suggests these fixed classifications can be too restrictive, especially for hybrid or multi-strategy funds that do not fit neatly into one box. CP 173 proposes a more risk-based approach focused on the fund’s activities, risk profile and required safeguards.
A private fund may combine credit, private equity, liquid securities, co-investments or real assets. A more flexible framework could make DIFC fund structures easier to use without removing the need for disclosure, risk management and investor protection.
Private credit gets a more proportionate treatment
The credit-fund proposals are among the most commercially relevant.
The DFSA proposes removing the requirement that 90% of a Credit Fund’s property must be used to provide credit. It also proposes reducing the base capital requirement for fund managers with credit strategies from $140,000 to $40,000, bringing it into line with the general fund-manager requirement. The DFSA also proposes removing the separate $10,000 application and annual fee for Credit Funds.
That would reduce friction for managers using credit as part of a broader strategy. But the DFSA is not removing safeguards entirely. CP 173 would keep restrictions on certain forms of lending, including credit facilities such as letters of credit or financial guarantees, and would continue to prohibit lending to natural persons or borrowers using credit for trading or for onward lending.
DIFC wants room for private-credit activity, but within clearer risk boundaries.
Cleaner licensing for investment managers
CP 173 also proposes simplifying authorisation for firms that manage fund assets.
The DFSA says dealing as agent and arranging deals should be treated as part of a Managing Assets licence when those activities are necessary for delegated fund management. In plain terms, a manager implementing portfolio decisions should not always need extra permissions for activities that are integral to managing the fund.
For firms operating in DIFC, this could reduce duplication and make authorization clearer.
Public feeder funds may become easier to structure
The consultation also updates rules for public feeder funds. A feeder fund invests into a master fund, a structure commonly used by global asset managers.
The DFSA proposes removing some master-fund eligibility criteria that it says no longer reflect market practice. These include the requirement for the master fund’s units to be offered regularly by at least three market makers and the restriction preventing a feeder fund from holding more than 20% of the master fund’s units. It also proposes broadening the definition of a master fund so it can accept investment from non-feeder institutional or professional investors.
This could make DIFC more practical for cross-border fund structures and public feeder products.
External fund managers face a tougher direction
One of the more significant proposals is the removal of the External Fund Manager regime.
That regime allowed non-DIFC fund managers to establish and manage DIFC domestic funds without having a place of business in DIFC. The DFSA now says its supervisory reach over non-DIFC entities is limited and that there is strong interest from firms seeking full DFSA authorization.
If adopted, the change would push more fund managers toward full local authorization. That could strengthen substance and supervision in DIFC, although it may reduce flexibility for overseas managers testing the market.
Employee co-investment gets more room
The DFSA also proposes allowing certain employees to invest directly or indirectly in private funds managed by their employer, without the fund losing its QIF or Exempt Fund status.
The proposal is aimed at employees directly involved in investment decision-making or investment advice. Minimum subscription and net-asset requirements would not apply, but employees would need sufficient investment knowledge. The DFSA also proposes disclosure requirements so investors understand where employee participation may create conflicts of interest.
For asset managers, this could support recruitment, retention and alignment with investors.
Tokenization and long-term funds are still early-stage questions
CP 173 also asks for initial feedback on two future policy areas.
The first is tokenization, including tokenized fund units, tokenized assets and tokenized money-market funds. The DFSA notes that distributed ledger technology may support fund ownership records, settlement and back-office processes, but asks whether existing rules create barriers in practice.
The second is a possible long-term investment fund regime for retail investors. These funds could give access to illiquid real-economy assets such as real estate, infrastructure, private companies or loans. The DFSA is asking whether such products should be available to mass retail investors or only a restricted retail segment, and what safeguards would be needed around redemptions and investor awareness.
Why it matters
The DFSA says firms should not act on the proposals until legislative and Rulebook changes are finalized. A general three-month transition period is proposed once changes are adopted.
DIFC’s funds framework is moving toward more flexible structures, clearer licensing, stronger local substance and more room for private markets and digital fund infrastructure.
For asset managers, the proposals could reduce unnecessary friction. For investors, the key question is whether flexibility is matched by strong disclosure, liquidity management and governance. That balance will determine whether the next phase of DIFC fund growth is larget and better regulated.
